Monday, 30 March 2009

Project management lessons from investment management

In ROI: Risk of Ignoring, I started to explore investment management as a metaphor for strategic project management. Here are some more lessons from investment management:
  • Risk / Reward: it follows, I think, that the projects with the greatest potential risk for failure carry the greatest potential rewards (all other things being equal). In traditional finance theory, advisors establish the risk tolerance of a client. Organisations too have a project risk tolerance. Conservative companies are just not that good a high risk projects - which goes a long way to explaining the relatively low levels of innovation (historically) in the financial services sector compared to the dot com sector, as well as the re-invention of big pharma.
  • Diversification: particularly at the higher risk end of the spectrum diversification pays - that is running a portfolio of projects whose failure points are not correlated dramatically increases the chances of success. In organisational terms, that means not focussing all of your innovation and investment in one division or area of the business at the expense of the rest. It also warns those business who pin their hopes on a single transformative initiative. (On the other hand, people can only deal with so much change at a time, so that needs to be managed too.)
  • Profit Taking: with investments, it makes sense to sell investments once you've made a respectable profit, rather than hanging on for the investment to peak, thereby leaving something on the table for the next investor. Similarly, it make sense to get you products out there before they have every last feature implemented. It's better to get something out there than it is to wait until the market turns and someone else has mopped up your target market.
  • Liquidity: investments that are easy to monetise are more attractive than those that are not. Look for project structures that are easy to disaggregate into pieces that are easily repurposed or multi-purposed. Look for early wins that impact the bottom line. This is why Agile methods have become so popular.